Bulgaria’s Djankov Sees Spending Caps Easing Euro Path
Bulgaria’s euro adoption efforts will get a boost from a government plan to include spending limits in the country’s constitution that mirror a European Union-wide push to curb deficits and debt, Finance Minister Simeon Djankov said.
The proposals include capping the deficit at less than 3 percent of gross domestic product, limiting government expenditures to 37 percent of GDP and that requiring corporate and income tax changes be approved by two-thirds of Parliament, Djankov said in an interview in Brussels yesterday. The rules, if adopted, would come into effect in 2013.
“The path toward the euro zone will be easier, because we will be able to show that the fiscal discipline is not only now, but that it will be maintained over time,” Djankov said. “It is an independently good policy to have, but it certainly will help us in the drive for the euro.”
German Chancellor Angela Merkel has called for debt caps in national constitutions modeled on those adopted by Germany in 2009 as the euro region struggles to contain a sovereign debt crisis and seeks to rebuild investor confidence. Poland adopted limits in 1997, while France and Hungary are considering similar fiscal rules.
French President Nicolas Sarkozy said last month he seeks to anchor a balanced budget in France’s constitution. Hungarian Prime Minister Viktor Orban last month proposed adding constitutional guarantees, including a cap on government debt, to avoid future budget-deficit overruns.
Poland, the largest of the EU’s eastern members, requires the government to balance the budget or face legal proceedings once debt reaches 60 percent of GDP.
Scrapped Euro Plan
Bulgarian government bond due in 2020 gained for the first time in four days, pushing the yield down to 5.514 percent as of 4:30 p.m. in Prague, from 5.556 percent in the previous day. The yield on the bond maturing in 2013 also dropped, after rising in the previous two days, to 4.232 percent from 4.267 percent.
Bulgaria, which joined the EU in 2007, currently has no official target date for adopting the euro. Prime Minister Boiko Borissov’s government, which took office in July 2009, scrapped plans last year to apply for to join the pre-euro exchange-rate mechanism after it was forced to revise the 2009 and 2010 deficit beyond the EU limit.
The EU said on Jan. 27 that Finland, Cyprus, Denmark and Bulgaria are taking steps to tackle their budget deficits and require no additional measures under the bloc’s monitoring program, known as the excessive-deficit procedure. The Bulgarian government seeks to cut its budget deficit to 2.5 percent of GDP this year, from 3.9 percent last year.
Before restarting the application for the exchange-rate mechanism, known as ERM, and the euro-area entry process, Bulgaria must show that its deficit for this year has fallen below the EU’s threshold of 3 percent of GDP, Djankov said. For the coming months, the Cabinet will make its priority getting the constitutional amendments through Parliament, he said.
Three-quarters of the deputies, or 180 lawmakers, must back the proposal in three separate votes on different days, Djankov said.
Borissov’s minority government has 116 lawmakers and may gain the support of two smaller groups that have backed it previously: the Attack party, with 20 lawmakers, and the so- called Blue Coalition of the Union of Democratic Forces and Democrats for Strong Bulgaria, which has 14 seats.
Djankov may also enlist the support of some of the 13 independent lawmakers, who left various parliamentary groups. He will still be short by about 20 votes unless some lawmakers within the two opposition parties, the Bulgarian Socialist Party and the ethnic-Turk Movement for Rights, which control 76 seats in the assembly, back the plan.
“It’s quite a high hurdle, but I’m quite confident we will get this three-quarters majority,” Djankov said. “In addition to the ruling party and our partners, the opposition parties have on numerous occasions stated that they would like to impose more fiscal discipline on the government as well.”
Djankov also said Bulgaria probably won’t need to tap international bond markets this year to finance its budget deficit as the economy returns to growth, adding to state revenue.
“We will not go to the Eurobond market this year, simply because we ended 2010 with a larger fiscal reserve than forecast,” Djankov said in the interview. “Our calculations show that for covering the deficit in 2011, we don’t need any additional financing. We have enough reserves.”
Bulgaria’s public debt is 14 percent of gross domestic product, the third-lowest in the EU after Estonia and Luxembourg.
The government last year said it considered an international bond sale for the beginning of 2011 to raise 800 million euros ($1.1 billion). A pickup in economic growth in the fourth quarter helped raise revenue and add to fiscal reserves, Djankov said.
The economy expanded 2.1 percent in the fourth quarter from a year earlier, compared with revised 0.2 percent growth in the third quarter, according to preliminary figures published by the Sofia-based statistics institute yesterday. In the first two quarters the economy contracted. The office hasn’t provided a full-year figure.
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